What To Sell: 3 Sell-Rated Dividend Stocks AJX, GOOD, RAS

TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.

While plenty of high-yield opportunities exist, investors must always consider the safety of their dividend and the total return potential of their investment. It is not uncommon for a struggling company to suspend high-yielding dividends which could subsequently result in precipitous share price declines.

TheStreet Ratings' stock rating model views dividends favorably, but not so much that other factors are disregarded. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e. how much one is willing to risk in order to earn profits?; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to its stock's performance.

These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. As always, stock ratings should not be treated as gospel — rather, use them as a starting point for your own research.

The following pages contain our analysis of 3 stocks with substantial yields, that ultimately, we have rated "Sell."

Great Ajax

Dividend Yield: 7.10%

Great Ajax (NYSE: AJX) shares currently have a dividend yield of 7.10%.

Great Ajax Corp. focuses primarily on acquiring, investing in, and managing a portfolio of re-performing and non-performing mortgage loans secured by single-family residences and single-family properties. The company has a P/E ratio of 7.38.

The average volume for Great Ajax has been 91,700 shares per day over the past 30 days. Great Ajax has a market cap of $223.7 million and is part of the real estate industry. Shares are up 15.8% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Great Ajax as a sell. Among the areas we feel are negative, one of the most important has been weak operating cash flow.

Highlights from the ratings report include:
  • Net operating cash flow has significantly decreased to -$4.13 million or 634.67% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • After a year of stock price fluctuations, the net result is that AJX's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • GREAT AJAX CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, GREAT AJAX CORP increased its bottom line by earning $1.62 versus $0.22 in the prior year. This year, the market expects an improvement in earnings ($2.25 versus $1.62).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 110.2% when compared to the same quarter one year prior, rising from $3.64 million to $7.65 million.
  • Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, GREAT AJAX CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.

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Gladstone Commercial

Dividend Yield: 8.30%

Gladstone Commercial (NASDAQ: GOOD) shares currently have a dividend yield of 8.30%.

Gladstone Commercial Corporation operates as a real estate investment trust (REIT) in the United States. It engages in investing in and owning net leased industrial and commercial real properties, and making long-term industrial and commercial mortgage loans.

The average volume for Gladstone Commercial has been 140,600 shares per day over the past 30 days. Gladstone Commercial has a market cap of $423.5 million and is part of the real estate industry. Shares are up 25.4% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Gladstone Commercial as a sell. Among the areas we feel are negative, one of the most important has been an overall disappointing return on equity.

Highlights from the ratings report include:
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, GLADSTONE COMMERCIAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • 41.93% is the gross profit margin for GLADSTONE COMMERCIAL CORP which we consider to be strong. Regardless of GOOD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, GOOD's net profit margin of 4.16% is significantly lower than the industry average.
  • GLADSTONE COMMERCIAL CORP has improved earnings per share by 25.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, GLADSTONE COMMERCIAL CORP continued to lose money by earning -$0.07 versus -$0.61 in the prior year. For the next year, the market is expecting a contraction of 7.1% in earnings (-$0.08 versus -$0.07).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 105.3% when compared to the same quarter one year prior, rising from $0.43 million to $0.89 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 12.0%. Since the same quarter one year prior, revenues slightly increased by 2.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.

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RAIT Financial

Dividend Yield: 11.10%

RAIT Financial (NYSE: RAS) shares currently have a dividend yield of 11.10%.

RAIT Financial Trust operates as a self-managed and self-advised real estate investment trust (REIT). The company, through its subsidiaries, invests in, manages, and services real estate-related assets with a focus on commercial real estate.

The average volume for RAIT Financial has been 529,300 shares per day over the past 30 days. RAIT Financial has a market cap of $297.7 million and is part of the real estate industry. Shares are up 20% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates RAIT Financial as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, poor profit margins, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Highlights from the ratings report include:
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 1323.6% when compared to the same quarter one year ago, falling from $0.76 million to -$9.32 million.
  • The gross profit margin for RAIT FINANCIAL TRUST is currently lower than what is desirable, coming in at 31.44%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -9.56% is significantly below that of the industry average.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 46.76%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 122.22% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • RAIT FINANCIAL TRUST has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, RAIT FINANCIAL TRUST turned its bottom line around by earning $0.08 versus -$3.88 in the prior year. For the next year, the market is expecting a contraction of 650.0% in earnings (-$0.44 versus $0.08).
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, RAIT FINANCIAL TRUST's return on equity significantly trails that of both the industry average and the S&P 500.

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